Thursday 28 May, 2020

Expect sharp growth reductions in Caribbean and Latin America - IDB

Latin America and the Caribbean will see sharp growth reductions of between -1.8 per cent and -5.5 per cent of GDP in 2020 due to the impact of the coronavirus (COVID-19) pandemic, says the Inter-American Development Bank.

The economic damage will carry into 2021 and 2022 unless governments implement well-focused programs to offset the impacts, according to the IDB’s 2020 Latin American and Caribbean Macroeconomic Report.

The numbers are based on four scenarios with varying external shock impacts.

The report provides fiscal, monetary and financial policy recommendations for countries in the face of the region’s most severe economic challenge since the Great Depression.

The 2009 Global Recession saw a two per cent decline in GDP and the region was able to grow at over six per cent in 2010, given regained access to capital markets, stronger fiscal balance sheets and commodity prices, the IDB said.

The challenge will be to find the right policy mix to ensure a swift recovery this time around, it added.

“Our region will suffer an economic shock of historic proportions,” said IDB Chief Economist Eric Parrado. “Countries should be saving lives, by ensuring social distancing and providing their health sectors with adequate resources. Complementary and temporary economic interventions can support economies during the partial, organized shut-downs.”

“We need to preserve the core of our economies intact to improve the chances of a quick rebound,” Parrado added. “Providing relief to those more vulnerable households that have lost their sources of income, helping and giving incentives to firms to reduce liquidations and avoid separation from their of employees, and extending liquidity to banks so they be part of the solution, can all work in that direction.”

The report includes four external shock scenarios: moderate, strong, severe and extreme. The severe scenario would imply a 12.2 per cent loss of the region’s GDP over three years and the extreme scenario would mean a loss of 14.4 per cent.

The use of scenarios rather than a single growth number estimate is to help policymakers better grasp the profound uncertainties and unprecedented nature of the pandemic. Currently, the risks are skewed towards the lower end of the range.

A set of detailed country briefs on each of the IDB’s 26 borrowing member countries is being published together with the release of the macroeconomic report.

Calibrated policies

Given the uncertainties around the nature of the virus, its spread and how it can be contained, the report seeks to help countries navigate this uncertain terrain and try to reduce the economic costs.

Financing may be a constraint. Countries can seek greater efficiencies, divert non-essential spending, and borrow and tap central bank balance sheets to some degree. Interventions should be calibrated carefully and evaluated to ensure they reach their intended beneficiaries. Policymakers should consider how such policies will be phased out to ensure fiscal sustainability beyond the coronavirus crisis.

The IDB is making an unprecedented effort to provide additional resources to countries, acting together with our multilateral partners. The IDB is making up to $12 billion available in 2020 to help countries cope with the coronavirus impacts, and IDB Invest – the IDB Group’s private sector arm – an additional $5 billion.

The IDB has also launched an information hub highlighting the bank´s research and priority areas to support countries in the face of the coronavirus crisis, including strengthening public health preparations, providing safety nets for vulnerable populations, improving economic productivity and employment, and fiscal policies to improve economic impacts.

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